What’s next on the agenda for the government?

With the election campaign finally over and a new government sworn in, many Australians will be wondering what a Labor government is likely to tackle over the next term. A helpful starting point is Labor’s election promises, which provide a useful indication of possible areas that will be targeted over the next few years. Two significant policies that Labor took to the election were child care changes (both in terms of the subsidy and structural changes) and dealing with multinational tax avoidance. In relation to the latter, it proposed a multifaceted approach by limiting debt-related deductions for multinationals, denying a tax deduction for intellectual property in some instances, and increasing transparency.

Multinational tax avoidance

One of the big tax policies that Labor took to the election was the party’s commitment to ensuring that multinationals pay their fair share of tax in Australia. To do this, Labor proposes a multipronged approach which includes:

• Limiting debt-related deductions (ie interest payments) by multinationals at 30% of profits to put an end to the creation of artificial debts and repayment arrangements within related entities. Further deductions over 30% may be considered if firms can substantiate those under either the arm’s length or the worldwide gearing ratio test.
• Limiting the ability of large multinationals to abuse Australia’s tax treaties while holding intellectual property in tax havens from 1 July 2023. Essentially, this means that if a firm makes payments for the use of intellectual property to a jurisdiction where they do not pay “sufficient tax”, a tax deduction in Australia will be denied for those payments.
• Increasing transparency by requiring large multinational firms to publicly release high-level data on how much tax they pay in the jurisdictions they operate in, along with the number of employees working in their business.
• Implementation of a public registry of beneficial ownership to show who ultimately owns, controls, or receives profits from a company or legal vehicle. This will stop individuals hiding behind complex corporate structures that avoid accountability and obscure their tax liabilities.
• Mandatory reporting to shareholders as a “material tax risk” where the company is doing business in a jurisdiction with a tax rate below the global minimum (15%).
• Requiring government tenderers for contracts worth more than $200,000 to disclose their country of tax domicile.

Child care subsidy

During the election campaign, Labor also promised to reduce the cost of child care by lifting the maximum child care subsidy rate to 90% for those with a first child in care. The following table summarises the current and Labor-proposed child care subsidy income thresholds and percentages.

In addition, Labor will be seeking to retain the higher child care subsidy rates for second and additional children in care. For those with school-aged children, the promise of the increased child care subsidy will be extended to outside school hours care.

Over the longer term, it is also likely that Labor will be engaging with the Australian Competition and Consumer Commission (ACCC) to design a price regulation mechanism for child care and with the Productivity Commission to conduct a comprehensive review of the sector with the aim of implementing a universal 90% subsidy for all families.

Other areas to watch

During the election campaign Labor also made announcements which will affect individuals and businesses, both big and small. These include more security for gig economy workers, making wage theft illegal, and training more apprentices.

Tax time 2022: ATO focus areas

Tax time 2022 is fast approaching, and this financial year, the ATO will again be focusing on a few key areas to ensure that individuals are doing the right thing and paying the right amount of tax. These key areas are considered by the ATO to be problem areas where individuals make the most mistakes.

Like last year, the ATO recommends that people wait until the end of July to lodge their tax returns, rather than rushing to lodge at the beginning of July. This is because much of the pre-fill information will become available later in the month, making it easier to ensure all income and deductions are reported correctly the first time, avoiding the need for amendments which can delay processing and refunds. In the past, it has been noted that individuals who lodge early often forget to include information about interest from banks, dividend income and payments from government agencies and private health insurers.

The ATO also reminds taxpayers that while it receives and matches information on rental income, foreign sourced income and capital gains, not all of that information will be pre-filled for individuals. Taxpayers will therefore need to ensure that all that information is included to avoid being caught up in ATO data-matching programs later on.

Some of the traditional areas that the ATO will be focusing on this year include record-keeping, work-related expenses and rental property income and deductions, as well as capital gains from property and shares. In addition, this year the ATO will focus on capital gains from cryptocurrency assets. It should be noted, however, that with recent crashes in cryptocurrency values, individuals are more likely to have related capital losses.

The ATO reminds taxpayers that any deductions that are claimed require substantiation, and those individuals who deliberately attempt to increase their refunds by falsifying records or are unable to provide evidence to substantiate their claims will be subject to “firm action”. For taxpayers who are working from home or in hybrid working arrangements and claim related expenses, the ATO has said it will be expecting a corresponding reduction in other expenses claimed, such as car, clothing, parking and tolls expenses.

Currently, there are still three methods available for taxpayers to deduct working from home expenses. These are actual cost, fixed rate and the all-inclusive shortcut method (80 cents per hour). Taxpayers should check their eligibility and work out which one that suits their own situation the best.

With the intense flooding experienced earlier this year, the ATO notes that some rental property owners may have insurance payouts related to their property. Any insurance payouts, along with other income received such as retained bonds or short-term rental arrangement income, need to be reported.

Lastly, the ATO will be keeping a close eye on individuals disposing of property, shares, and cryptocurrency, including non-fungible tokens (NFTs). Those with a capital gain need to include the gain in their tax return and pay tax on the gain at their marginal tax rates. Individuals who have recently sold out of cryptocurrency assets may have experienced a capital loss, which the ATO warns cannot be offset against other income such as salary and wages, and only against other capital gains.

Tax return checklists

Last month’s edition of Client Alert (May 2022) included a handy set of checklists for individual tax returns, super fund tax returns and company, trust or partnership tax returns to assist your clients in compiling all of the necessary information before seeing you about their returns this tax time.

Source: www.ato.gov.au/Media-centre/Media-releases/Four-priorities-for-the-ATO-this-tax-time/

Single Touch Payroll: Phase 2

While Single Touch Payroll (STP) entered Phase 2 on 1 January 2022, many employers might not yet be reporting the additional information required under this phase because their digital service providers (DSPs) have obtained deferrals for time to get their software ready and help their customers transition. However, once these deferrals expire, employers will need to start reporting additional information in their payroll software such as tax file numbers (TFNs) or Australian business numbers (ABNs) for payees, employment start dates for employees and details about employees’ basis of employment according to work type. Income and allowance information for individual employees will be further disaggregated and will also require reporting of more details.

Essentially, STP works by sending tax and super information from an STP-enabled payroll or accounting software solution directly to the ATO when the payroll is run. Entering STP Phase 2 means that additional information which may not be currently stored in some employers’ payroll systems will need to be reported through the payroll software. A salient example is the start date of employees. While many newer businesses may have that information handy, older businesses may have trouble finding records of exact start dates, particularly for their long-serving employees. In those instances, the ATO notes that a default commencement date of 01/01/1800 can be reported for STP Phase 2 purposes.

Employers will also be required to report either a TFN or an ABN for each payee included in STP Phase 2 reports. Where a TFN is not available for an employee, a TFN exemption code must be used. If a payee is a contractor and an employee within the same financial year, both their ABN and their TFN must be reported.

In addition to reporting TFNs and commencement dates for employees, employers are now also required to report the basis of employment according to work type. That is, whether an individual is full-time, part-time, casual, labour hired, has a voluntary agreement (is a contractor with their own ABN but is in a voluntary agreement with the business to bring payments into the PAYG system), a death beneficiary, or a non-employee (ie not in the scope of STP but included for the voluntary reporting of superannuation liabilities).

The report generated for STP Phase 2 will include a six-character tax treatment code for each employee, which is a shortened way of indicating to the ATO how much should be withheld from payments to these employees. Most STP solutions will automatically report these codes, but employers should still understand what the codes are to ensure that they are correct. For example, RTSXXX refers to regular (R) employees with a tax-free threshold (T), who have study and training support loans (S) and who have not asked for a variation of amount withheld due to Medicare levy surcharge (X) or Medicare levy exemption (X), or Medicare levy reduction (X).

The income and allowance details attributed to employees will also be further drilled down in Phase 2. For example, instead of reporting a single gross amount of employees’ income, employers need to separately report on gross income, paid leave, allowances, overtime, bonuses, directors’ fees, return to work payments (lump sum W) and salary sacrifice amounts.

If your DSP has a deferral in place, you do not need to apply for your own deferral and will only need to start reporting STP Phase 2 information from your next pay run after your DSP’s deferral expires. However, if your business needs more time in addition to your DSP’s deferral, you can apply for your own deferral using ATO Online Services.

Source: www.ato.gov.au/Business/Single-Touch-Payroll/Expanding-Single-Touch-Payroll-(Phase-2)/

www.ato.gov.au/Business/Single-Touch-Payroll/Need-more-time/STP-expansion-(Phase-2)-delayed-transitions/

ATO resumes collecting aged debts

Taxpayers with aged debts that the ATO had paused collecting or put on hold should be aware that offsetting aged debts against tax refunds or credits has now resumed. The aged debts can be offset either from ATO accounts or credits from other government agencies, although a debt will not be offset if the only available credit relates to a Family Tax Benefit amount.

“Aged debts” is a collective term the ATO uses to refer to uneconomical non-pursued tax debts that it has placed on hold and has not undertaken any recent action to collect. These debts do not typically show up on the online accounts of the taxpayers as an outstanding balance as the ATO has made them “inactive”.

Usually when a debt is put on hold, the ATO notifies the taxpayer via a letter that the debt collection has been paused, although any credits that the taxpayer is entitled to will be offset against the debt. In addition, the ATO will note that it reserves the right to re-raise the debt in the future, depending on the circumstances of the taxpayer. Letters were sent out in May 2022 to remind taxpayers that they have aged debts and June 2022 will see the recommencement of debt collection.

While most taxpayers (or their tax agents) should have received their aged debts letter by now, some may not have received anything, due to a change of address or patchiness in the postal service. The first clue for those taxpayers that they may have an aged debt may be when they notice that their refund is less than expected or that a credit on one account is less than it should be. To avoid surprises, taxpayers who are unsure whether they have aged debt can check their online services for a transaction with the description “non-pursuit” on their statement of account.

It’s important to remember that those with multiple accounts need to check all relevant accounts for that description to ensure they do not have an aged debt.

Taxpayers with aged debts who are unable to or choose not to pay all or part of the debt may find that they end up paying more, as general interest charge (GIC) may be automatically applied even where the debt is “on hold”. Where the ATO offsets aged debts either from ATO accounts or credits from other government agencies, taxpayers will be notified that the debt has been re-raised and offset. If it is offset against an ATO account, taxpayers will be able to find a transaction on online services with the description “offset”.

By law, the ATO is required to offset credits against any tax debts owed – except in some very limited circumstances, such where the taxpayer already has a fully compliant payment plan for outstanding debts; where the tax debt is a future debt or is related to a director penalty liability; where a deferral has been granted for recovery action; or where the available credit is a Family Tax Benefit amount.

Taxpayers that do not meet these criteria and are unable to pay their aged debt may be able to apply for a review or a debt waiver depending on their circumstances. For example, a permanent release of a debt may be available to on the basis of serious hardship (ie where the payment of a tax liability would result in a person being left without the means to afford basics such as food, clothing, medical supplies, accommodation or reasonable education).

Source: www.ato.gov.au/Tax-professionals/Newsroom/Your-practice/Resuming-offsetting-of-debts-on-hold/

www.ato.gov.au/General/Paying-the-ATO/How-much-you-owe/Debts-on-hold/

Operation Protego: detecting GST fraud

The ATO has lifted the lid on its most recent operation to stamp out GST fraud, Operation Protego, in order to warn the business community to not engage with fraudulent behaviour and to encourage those who have fallen into the trap to voluntarily disclose, before the application of tougher penalties.

Recently, the ATO has seen a rise in the number of schemes where taxpayers invent fake businesses in order to submit fictitious Business Activity Statements (BASs) and obtain illegal refunds. Most of these schemes have been promoted through social media and it has become such an issue that the ATO has commenced Operation Protego to tackle the problem.

According to the ATO, Operation Protego was initiated when its risk models, coupled with intelligence received from the banks, AUSTRAC-led Fintel Alliance, and the Reserve Bank of Australia (RBA), identified escalation of suspicious refunds. The operation itself is specifically investigating people inventing fake businesses to obtain Australian business numbers (ABNs), which are then used to submit fictitious BASs and get GST refund payments these “business owners” are not actually entitled to receive.

The amounts involved in these schemes are significant, with $20,000 being the average amount in fraudulently obtained GST refund payments. The ATO is currently investigating around $850 million in potentially fraudulent payments made to around 40,000 individuals, and is working with financial institutions that have frozen suspected fraudulent amounts in bank accounts. The ATO notes that while $850 million in fraudulent payments is a substantial sum, the operation has been able to stop many more fraud attempts.

It may be the case that not all of the individuals involved in these refund schemes know they are doing something illegal. For example, schemes promoting loans from the ATO or obtaining government disaster payments from the ATO have been on the rise on various social media platforms. Ever-changing content about all sorts of pandemic and disaster related support has become commonplace online, and many people don’t have detailed knowledge about all the requirements of Australian business and tax law. It’s really not surprising that it can be difficult to distinguish scam promotions from genuine support measures.

“We are working with social media platforms to help remove content promoting this fraud, but if you see something that sounds too good to be true, it probably is”, Will Day, ATO Deputy Commissioner and Chief of the Serious Financial Crime Taskforce, has said.

The ATO wants to make it clear that it does not offer loans or administer government disaster payments. Any advertisement indicating that the ATO does these things is a rort. Government disaster payments are administered through Services Australia if they are Federal Government payments (eg Australian Government Disaster Recovery Payments), or through various state and territory government bodies if they are state or territory government payments (eg Disaster Relief Grants from the NSW government administered by Resilience NSW).

Scheme promoters will also sometimes require individuals or businesses to hand over their myGov details as a prerequisite to obtaining a fictitious loan or government disaster payment. Taxpayers who may have shared myGov login details for themselves or their business with scheme operators are encouraged to contact the ATO for assistance.

Another red flag the ATO is on the look-out for as a part of Operation Protego is activity backdating when a business is set up. It notes that backdating in conjunction with seeking a GST refund will flag a business as high risk and will subject it to more scrutiny, as well as compliance action.

While Operation Protego is running, the ATO notes that people and businesses acting legitimately may be affected by the extra controls put in place to stop fraudulent refunds.

Source: www.ato.gov.au/Media-centre/Media-releases/ATO-warns-community–do-not-engage-in-GST-fraud/

More ATO action on super guarantee non-compliance

Employers should take note that the ATO is now back to its pre-COVID-19 setting in relation to late or unpaid superannuation guarantee (SG) amounts. Firmer SG-related related recovery actions that were suspended during the pandemic have now recommenced, and the ATO advises it will be prioritising engaging with taxpayers that have SG debts, irrespective of the debt value.

The Australian National Audit Office (ANAO) has recently issued a report on the results of an audit conducted on the effectiveness of ATO activities in addressing SG non-compliance. While the ANAO notes that the SG system operates largely without regulatory intervention, because employers make contributions directly to super funds or through clearing houses, the ATO does have a role as the regulator to encourage voluntary compliance and enforce penalties for non-compliance.

To measure the level of non-compliance in this area, the ATO uses a measure called the SG gap, which is an estimate of the difference between the amount the ATO collects and what would have been collected if every taxpayer was fully compliant. The most recent data from the ATO was published in 2021 and indicated that the Australian total net SG gap in 2018–2019 was around $2.5 billion.

Overall, the ANAO report found that ATO activities addressing SG non-compliance have been only partly effective. This also held true for the risk-based SG compliance framework in which the ATO operates. The report notes that while there was some evidence that the ATO’s compliance activities were improving employer compliance, the extent of improvement could not be reliably assessed.

The report makes three recommendations to improve ATO compliance activities in relation to SG non-compliance. The first is that the ATO should implement a preventative approach to SG compliance. The second is that the ATO should assess its performance measures against the Public Governance Performance and Accountability Rule 2014 and enhance its public SG performance information. This includes setting targets for measures such as the SG gap and having explanations for performance results, as well as changes over time.

While the first two recommendations are likely to have a negligible practical impact on day-to-day operations for employers in general, the ANAO’s third and final recommendation may be a different story. Among other things, the ANAO recommends that the ATO maximise the benefit to employees’ super funds by making more use of its enforcement and debt recovery powers, and consider the merits of incorporating debtors that hold the majority of debt into its prioritisation of debt recovery actions.

In its reply to the ANAO report, the ATO agrees with this third recommendation and states that while it paused many of its firmer SG related recovery actions through the COVID-19 pandemic, those have now recommenced. With the recommencement of recovery actions, the ATO’s focus will generally be on taxpayers with higher debts, although it will be prioritising taxpayers with SG debts overall, irrespective of the debt value.

The ATO’s reply also agrees with the first two recommendations in whole or part. It says that it has already begun implementing a preventative compliance strategy using data sources such as Single Touch Payroll (STP) and regular reporting from super funds. The ATO expects to continuing prioritising a preventative approach while also strengthening its data capability.

In addition, the ATO has indicated it will continue to investigate every complaint received in relation to the non-payment of SG, and take action where non-payment is identified. The actions available include the imposition of tax and super penalties, as well as the recovery and back-payment of super to employees. It will also be increasing transparency of compliance activities and employer payment plans so that affected employees are aware of the expected timing of back payments of super.

Source: www.anao.gov.au/work/performance-audit/addressing-superannuation-guarantee-non-compliance

www.ato.gov.au/Media-centre/Media-releases/Statement-on-ANAO-performance-audit–Addressing-Superannuation-Guarantee-Non-compliance-audit/

www.ato.gov.au/Business/super-for-employers/missed-and-late-super-guarantee-payments/

Employees vs contractors: more clarity coming

For many businesses, the line between employees and contractors is becoming increasingly blurred, partly due to the rise of the gig economy. However, businesses should be careful, as incorrectly classifying employees as contractors may be illegal and expose the business to various penalties and charges.

Recently, the High Court handed down a significant decision in a case involving the distinction between employees and contractors. In the case, a labourer had signed an Administrative Services Agreement (ASA) with a labour hire company to work as a “self-employed contractor” on various construction sites. The Full Federal Court had initially held that the labourer was an independent contractor after applying a “multifactorial” approach by reference to the terms of the ASA, among other things. The High Court, however, overturned that decision and held that the labourer was an employee of the labour hire company.

The High Court held that the critical question was whether the supposed employee performed work while working in the business of the engaging entity. That is, whether the worker performed their work in the labour hire firm’s business or in an enterprise or business of their own.

As a result of the decision, the ATO has said it will review relevant rulings, including super guarantee rulings on work arranged by intermediaries and who is an employee, as well as income tax rulings in the areas of PAYG withholding and the identification of employer for tax treaties.

Movement at the FBT station: COVID-19 tests, car parking

FBT is generally seen as a relatively slow-moving and quiet area of tax law. But Budget day this year saw some movement at the FBT station, specifically regarding COVID-19 tests provided to staff, and also car parking benefits.

RATs for employees

The 2022–2023 Federal Budget included a measure, now passed into law, to make costs for taking a COVID-19 test to attend their workplace tax-deductible for individuals from 1 July 2021.

COVID-19 tests, including rapid antigen tests (RATs), provided by employers to employees are considered benefits under the FBT regime.

However, by allowing for an individual tax deduction, the new measure also allows for the operation of the “otherwise deductible” rule to reduce the taxable value of the benefit to zero. The result? By introducing a specific individual income tax deduction, employers would also not have to pay FBT.

Neat solution. Well, apart from the catch: employee-level declarations could be required when the provision of a RAT is a property fringe benefit (that is, legal ownership of the item passes from the employer to the employee).

Where a RAT is provided as an expense reimbursement or residual benefit, an employer-level declaration is available (that is, one declaration signed by the public officer on behalf of each employing entity lodging an FBT return to declare that there is no private use).

In case collecting hundreds or thousands of employee-level paper declarations is not how you’d like to spend your time, we see three options at this stage:

• assess the potential application of the minor benefit rule to your situation;
• explore your policy and processes to determine whether the benefit provided could meet an exemption or documentation exception; and
• use an automated, electronic declaration tool to take some pain out of the process.

 “Commercial parking station” definition

As a reminder:

• a car parking fringe benefit can only arise where the employee parks their car for at least four hours during a daylight period in an employer-provided space in the vicinity of the principal workplace;
• there must be a commercial parking station that charges more than a threshold amount (currently $9.25) for all-day parking within one kilometre of the entrance to the employer’s car park; and
• “all-day parking” means parking continuously for at least six hours between 7 am and 7 pm.

The scope of the term “commercial parking station” is therefore fundamental to determining if an employer has taxable car parking benefits.

Broadly, a commercial parking station is one where car parking spaces are, for payment of a fee, available in the ordinary course of business to members of the public for all-day parking.

The ATO issued a ruling in 2021 that no longer applied the interpretation that car parking facilities with a primary purpose other than providing all-day parking (usually charging significantly higher rates) are not commercial parking stations. This was to apply from 1 April 2022.

In effect, this would bring facilities like shopping centre car parks and hospital car parks into the definition of a “commercial parking station”. For employers with only that type of parking within a one-kilometre radius, the consequences were significant, potentially bringing previously non-taxable employer-provided car parking within the scope of FBT.

The Federal Government has announced it will be undertaking consultation with the intent of restoring the previously understood application of FBT to car parking fringe benefits, which is closer to the original policy intent of the car parking FBT provisions. The readjusted definition would then apply from 1 April 2022 instead.

ATO urges vigilance: new TFN and ABN scams

The ATO is urging people and businesses to be vigilant following an increase in reports of fake websites offering to provide tax file numbers (TFN) and Australian business numbers (ABN) for a fee, but failing to provide those services.

The fake TFN and ABN services are often advertised on Facebook, Twitter or Instagram. The scammers use the fraudulent websites they advertise to steal both money and personal information.

Tip: The ATO and Australian Business Register (ABR) do not charge fees for providing a TFN or an ABN. It’s free, quick and easy to use government services online to apply for a TFN through the ATO, or apply for an ABN through the ABR.

The ATO is also still seeing scammers impersonating the ATO, making threats, demanding the payment of fake tax debts or claiming a TFN has been “suspended” due to fraud.

In 2021, more than 50,000 people reported various ATO impersonation scams, with victims losing a total of more than $800,000.

Tips to protect yourself from scammers

• Know your tax affairs – You will be notified about your tax debt before it is due. Check if you have a legitimate debt by logging into your myGov account or calling your tax agent. Find the contact details for the ATO or your tax agent independently by searching online or using your own paper records – don’t trust details provided by possible scammers.
• Guard your personal and financial information – Be careful when clicking on links, downloading files or opening attachments. Only give your personal information to people you trust and don’t share it on social media.
• If you’re not sure, don’t engage – If a call, SMS or email leaves you wondering if it’s genuine, don’t reply. You can phone the ATO’s dedicated scam line on 1800 008 540 to check if it is legitimate. You can also verify or report a scam online at www.ato.gov.au/scams and visit ScamWatch at www.scamwatch.gov.au to get information about scams (not just tax scams).
• Know legitimate ways to make payments – Scammers may use threatening tactics to trick you into paying fake debts via unusual methods. For example, they might demand pre-paid gift cards or transfers to non-ATO bank accounts. To check that a payment method is legitimate, visit www.ato.gov.au/howtopay.

Federal Budget fuel excise reduction: will all businesses benefit?

The uncertainty around availability of fuel has seen fuel prices soar across Australia. The 2022–2023 Federal Budget proposed an answer for this by way of a temporary (six-month) reduction to fuel excise.

The six-month reduction is now law, and will end at midnight on 28 September 2022.

For petrol and diesel, this means an excise reduction from 44.2 to 22.1 cents per litre, which is already being felt by users at the pump. But who will actually benefit from this Budget promise and what does it mean for businesses claiming fuel tax credits (FTCs)?

Snapshot: who will benefit?

Individuals:

• all fuel uses of individuals – benefit of 22.1 cents per litre.

Businesses:

• businesses operating light vehicles on public roads – benefit of 22.1 cents per litre;
• businesses operating heavy vehicles on public roads – benefit of 4.3 cents per litre;
• businesses operating vehicles on private roads – no benefit; and
• businesses using fuel for non-vehicle use (auxiliary, machinery, plant and equipment) – no benefit.

What should businesses do?

For businesses that currently claim FTCs, it’s important to understand the impact of these changes on their FTC entitlement and to adjust their FTC process accordingly.

We expect there will be increased complexity for businesses claiming FTCs in the first few weeks of the temporary measure and the weeks following its conclusion. This is because the changes in fuel excise are expected to trickle through from fuel suppliers depending on where businesses are located and how they purchase their fuel. Businesses will be required to determine which rate of fuel excise has been applied to fuel purchases to determine the rate of fuel tax credit available.

ATO’s COVID-related support for SMSFs

Because of the financial impacts of COVID-19, trustees of a self managed superannuation fund (SMSF), or a related party of the fund, may provide or accept certain types of relief, which may give rise to contraventions of the super laws. Some trustees may also have been stranded overseas because of travel bans, which can affect their fund’s residency status.

In recognition of these issues, the ATO is offering support and relief to SMSF trustees for the 2019–2020, 2020–2021 and 2021–2022 income years.

This generally includes not taking any compliance action against an SMSF and not requiring the SMSF auditor to report related contraventions in the following areas:

• where an SMSF trustee or a related party of the SMSF offered rental relief to a tenant due to COVID-19;

Tip: Temporary changes to a lease agreement for rental relief need to be properly documented, together with the reasons for those changes. A formal variation of the lease may need to be executed.

• where a plan to get the value of SMSF’s in-house asset holdings below 5% of the fund’s total assets couldn’t be executed in time because of COVID-19;
• where a fund offered loan repayment relief because the borrower was experiencing difficulty repaying the loan because of COVID-19;
• where a fund no longer satisfies the residency rules because the trustee/s were stranded overseas for an extended period; and
• where a fund has a limited recourse borrowing arrangement (LRBA) with a related party lender, and the lender offered COVID-19 loan repayment relief to the fund.

Trustees must properly document all of these sorts of relief and provide their approved SMSF auditor with evidence to support it for the purposes of the annual SMSF audit.

2022/23 Federal Budget

PERSONAL TAXATION

Personal tax rates unchanged for 2022–2023

In the Budget, the Government did not announce any personal tax rates changes. The Stage 3 tax changes commence from 1 July 2024, as previously legislated.

The 2022–2023 tax rates and income thresholds for residents are unchanged from 2021–2022:

• taxable income up to $18,200 – nil;
• taxable income of $18,201 to $45,000 – 19% of excess over $18,200;
• taxable income of $45,001 to $120,000 – $5,092 plus 32.5% of excess over $45,000;
• taxable income of $120,001 to $180,000 – $29,467 plus 37% of excess over $120,000; and
• taxable income of more than $180,001 – $51,667 plus 45% of excess over $180,000.

Stage 3: from 2024–2025

The Stage 3 tax changes will commence from 1 July 2024, as previously legislated. From 1 July 2024, the 32.5% marginal tax rate will be cut to 30% for one big tax bracket between $45,000 and $200,000. This will more closely align the middle tax bracket of the personal income tax system with corporate tax rates. The 37% tax bracket will be entirely abolished at this time.

Therefore, from 1 July 2024, there will only be three personal income tax rates: 19%, 30% and 45%. From 1 July 2024, taxpayers earning between $45,000 and $200,000 will face a marginal tax rate of 30%. With these changes, around 94% of Australian taxpayers are projected to face a marginal tax rate of 30% or less.

Low income offsets: LMITO temporarily increased, LITO retained

The low and middle income tax offset (LMITO) will be increased by $420 for the 2021–2022 income year so that eligible individuals will receive a maximum LMITO benefit up to $1,500 for 2021–2022 (up from the current maximum of $1,080).

This one-off $420 cost of living tax offset will only apply to the 2021–2022 income year. Importantly, the Government did not announce an extension of the LMITO to 2022–2023. So it remains legislated to only apply until the end of the 2021–2022 income year (albeit up to $1,500 instead of $1,080).

The Government said the LMITO for 2021–2022 will be paid from 1 July 2022 to more than 10 million individuals when they submit their tax returns for the 2021–2022 income year. Other than those who do not require the full offset to reduce their tax liability to zero, all LMITO recipients will benefit from the full $420 increase. That is, the proposed one-off $420 cost of living tax offset will increase the maximum LMITO benefit in 2021–2022 to $1,500 for individuals earning between $48,001 and $90,000 (but phasing out up to $126,000). Those earning up to $48,000 will also receive the $420 one-off tax offset on top of their existing $255 LMITO benefit (phasing up for incomes between $37,001 and $48,000).

All other features of the current LMITO remain unchanged (including that it will only apply until the end of the 2021–2022 income year). Consistent with the current LMITO, taxpayers with incomes of $126,000 or more will not receive the additional $420.

As already noted, the Government has proposed that eligible taxpayers with income up to $126,000 will receive the additional one-off $420 cost of living tax offset for 2021–2022 on top of their existing LMITO benefit.

Currently, the amount of the LMITO for 2021–2022 is $255 for taxpayers with a taxable income of $37,000 or less. Between $37,000 and $48,000, the value of LMITO increases at a rate of 7.5 cents per dollar to the maximum amount of $1,080. Taxpayers with taxable incomes from $48,000 to $90,000 are eligible for the maximum LMITO of $1,080. From $90,001 to $126,000, LMITO phases out at a rate of 3 cents per dollar.

Low income tax offset (unchanged)

The low income tax offset (LITO) will also continue to apply for the 2021–2022 and 2022–2023 income years. The LITO was intended to replace the former low income and low and middle income tax offsets from 2022–2023, but the new LITO was brought forward in the 2020 Budget to apply from the 2020–2021 income year.

The maximum amount of the LITO is $700. The LITO will be withdrawn at a rate of 5 cents per dollar between taxable incomes of $37,500 and $45,000 and then at a rate of 1.5 cents per dollar between taxable incomes of $45,000 and $66,667.

Medicare levy low-income thresholds increased

For the 2021–2022 income year, the Medicare levy low-income threshold for singles will be increased to $23,365 (up from $23,226 for 2020–2021). For couples with no children, the family income threshold will be increased to $39,402 (up from $39,167 for 2020–2021). The additional amount of threshold for each dependent child or student will be increased to $3,619 (up from $3,597).

For single seniors and pensioners eligible for the SAPTO, the Medicare levy low-income threshold will be increased to $36,925 (up from $36,705 for 2020–2021). The family threshold for seniors and pensioners will be increased to $51,401 (up from $51,094), plus $3,619 for each dependent child or student.

Legislation is required to amend these thresholds, and a Bill will be introduced shortly.

COVID-19 test expenses to be deductible

The Budget papers confirm that the costs of taking COVID-19 tests – including polymerase chain reaction (PCR) tests and rapid antigen tests (RATs) – to attend a place of work are tax deductible for individuals from 1 July 2021. In making these costs tax deductible, the Government will also ensure FBT will not be incurred by businesses where COVID-19 tests are provided to employees for this purpose.

This measure was previously announced on 8 February 2022.

COST OF LIVING MEASURES

One-off $250 cost of living payment

The Government will make a $250 one-off cost of living payment in April 2022 to six million eligible pensioners, welfare recipients, veterans and eligible concession card holders.

The $250 payment will be tax-exempt and not count as income support for the purposes of any Government income support. A person can only receive one economic support payment, even if they are eligible under two or more of the eligible categories.

The payment will only be available to Australian residents who are eligible recipients of the following payments, and to concession card holders:

• Age Pension;
• Disability Support Pension;
• Parenting Payment;
• Carer Payment;
• Carer Allowance (if not receiving a primary income support payment);
• Jobseeker Payment;
• Youth Allowance;
• Austudy and Abstudy Living Allowance;
• Double Orphan Pension;
• Special Benefit;
• Farm Household Allowance;
• Pensioner Concession Card (PCC) holders;
• Commonwealth Seniors Health Card holders; and
• eligible Veterans’ Affairs payment recipients and Veteran Gold card holders.

Temporary reduction in fuel excise

The Government will reduce the excise and excise-equivalent customs duty rate that applies to petrol and diesel by 50% for six months. The excise and excise-equivalent customs duty rates for all other fuel and petroleum-based products, except aviation fuels, will also be reduced by 50% for six months.

The Treasurer said this measure will see excise on petrol and diesel cut from 44.2 cents per litre to 22.1 cents. Mr Frydenberg said a family with two cars who fill up once a week could save around $30 a week, or around $700 over the next six months. The Treasurer made a point of emphasising that the Australian Competition and Consumer Commission (ACCC) will monitor the price behaviour of retailers to ensure that the lower excise rate is fully passed on.

The measure will commence from 12.01 am on 30 March 2022 and will remain in place for six months, ending at 11.59 pm on 28 September 2022.

BUSINESS TAXATION

Deduction boosts for small business: skills and training, digital adoption

The Government announced two support measures for small businesses (aggregated annual turnover less than $50 million) in the form of a 20% uplift of the amount deductible for expenditure incurred on external training courses and digital technology.

External training courses

An eligible business will be able to deduct an additional 20% of expenditure incurred on external training courses provided to its employees. The training course must be provided to employees in Australia or online, and delivered by entities registered in Australia.

Some exclusions will apply, such as for in-house or on-the-job training.

The boost will apply to eligible expenditure incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2024.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2024, will be included in the income year in which the expenditure is incurred.

Digital adoption

An eligible business will be able to deduct an additional 20% of the cost incurred on business expenses and depreciating assets that support its digital adoption, such as portable payment devices, cyber security systems or subscriptions to cloud-based services.

An annual cap will apply in each qualifying income year so that expenditure up to $100,000 will be eligible for the boost.

The boost will apply to eligible expenditure incurred from 7:30 pm (AEDT) on 29 March 2022 until 30 June 2023.

The boost for eligible expenditure incurred by 30 June 2022 will be claimed in tax returns for the following income year. The boost for eligible expenditure incurred between 1 July 2022 and 30 June 2023 will be included in the income year in which the expenditure is incurred.

PAYG instalments: option to base on financial performance

The Budget papers confirm the Treasurer’s earlier announcement that companies will be allowed to choose to have their PAYG instalments calculated based on current financial performance, extracted from business accounting software (with some tax adjustments).

The commencement date is “subject to advice from software providers about their capacity to deliver”. It is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024, for application to periods starting on or after that date. There are no details yet as to what tax adjustments will be required (although presumably this will involve a reverse, modified form of tax effect accounting).

PAYG and GST instalment uplift factor

The Budget papers confirm the Treasurer’s earlier announcement that the GDP uplift factor for PAYG and GST instalments will be set at 2% for the 2022–2023 income year. The papers state that this uplift factor is lower than the 10% that would have applied under the statutory formula.

The 2% GDP uplift rate will apply to small to medium enterprises eligible to use the relevant instalment methods (up to $10 million annual aggregated turnover for GST instalments and $50 million annual aggregated turnover for PAYG instalments) in respect of instalments that relate to the 2022–2023 income year and fall due after the enabling legislation receives assent.

More COVID-19 business grants designated NANE income

The Government has extended the measure which enables payments from certain state and territory COVID-19 business support programs to be made non-assessable, non-exempt (NANE) income for income tax purposes until 30 June 2022. This measure was originally announced on 13 September 2020.

Consistent with this, the Government has made the following state and territory grant programs eligible for this treatment since the 2021–2022 Mid-Year Economic and Fiscal Outlook:

• New South Wales Accommodation Support Grant
• New South Wales Commercial Landlord Hardship Grant
• New South Wales Performing Arts Relaunch Package
• New South Wales Festival Relaunch Package
• New South Wales 2022 Small Business Support Program
• Queensland 2021 COVID-19 Business Support Grant
• South Australia COVID-19 Tourism and Hospitality Support Grant
• South Australia COVID-19 Business Hardship Grant.

The changes are part of an ongoing series of announcements which will continue to have effect until 30 June 2022.

TAX COMPLIANCE AND INTEGRITY

Digitalising trust income reporting

The Budget confirms the Government’s previously announced intention to digitalise trust and beneficiary income reporting and processing.

It will allow all trust tax return filers the option to lodge income tax returns electronically, increasing pre-filling and automating ATO assurance processes. There are no other additional details in the Budget papers than in the earlier announcement.

The measure will commence from 1 July 2024 – “subject to advice from software providers about their capacity to deliver”.

The Government advises that it will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications.

Taxable payments data reporting: option to link to BAS cycle

The Budget confirms the Treasurer’s earlier announcement that businesses will be provided with the option to report taxable payments reporting system data on the same lodgment cycle as their activity statements, via accounting software. The rules for the taxable payments reporting system are contained in Subdiv 396-B of Sch 1 to the Taxation Administration Act 1953.

The Government will consult with affected stakeholders, tax practitioners and digital service providers to finalise the policy scope, design and specifications of the measure.

Subject to advice from software providers about their capacity to deliver, it is anticipated that systems will be in place by 31 December 2023, with the measure to commence on 1 January 2024.

SUPERANNUATION

Super guarantee: rate rise unchanged

The Budget did not announce any change to the timing of the next super guarantee (SG) rate increase. The SG rate is currently legislated to increase from 10% to 10.5% from 1 July 2022, and by 0.5% per year from 1 July 2023 until it reaches 12% from 1 July 2025.

With the SG rate set to increase to 10.5% for 2022–2023 (up from 10%), employers need to be mindful that they cannot use an employee’s salary-sacrificed contributions to reduce the employer’s extra 0.5% of super guarantee. The ordinary time earnings (OTE) base for super guarantee purposes now specifically includes any sacrificed OTE amounts. This means that contributions made on behalf of an employee under a salary sacrifice arrangement (defined in s 15A of the Superannuation Guarantee (Administration) Act 1992) are not treated as employer contributions which reduce an employer’s charge percentage.

Super Guarantee opt-out for high-income earners

The increase in the SG rate to 10.5% from 1 July 2022 also means that the SG opt-out income threshold will decrease to $261,904 from 1 July 2022 (down from $275,000). High-income earners with multiple employers can opt-out of the SG regime in respect of an employer to avoid unintentionally breaching the concessional contributions cap ($27,500 for 2021–2022 and 2022–2023). Therefore, the SG opt-out threshold from 1 July 2022 will be $261,904 ($27,500 divided by 0.105).

Superannuation pension drawdowns

The temporary 50% reduction in minimum annual payment amounts for superannuation pensions and annuities will be extended by a further year to 30 June 2023.

The 50% reduction in the minimum pension drawdowns, which has applied for the 2019–2020, 2020–2021 and 2021–2022 income years, was due to end on 30 June 2022. However, the Government announced that the Superannuation Industry (Supervision) Regulations 1994 (SIS Regulations) will be amended to extend this temporary 50% reduction for minimum annual pension payments to the 2022–2023 income year. Given ongoing volatility, the Government said the extension of this measure to
2022–2023 will allow retirees to avoid selling assets in order to satisfy the minimum drawdown requirements.

Minimum drawdowns reduced 50% for 2022–2023

The reduction in the minimum payment amounts for 2022–2023 is expected to apply to account-based, allocated and market linked pensions. Minimum payments are determined by age of the beneficiary and the value of the account balance as at 1 July each year under Sch 7 of the SIS Regulations.

No maximum annual payments apply, except for transition to retirement pensions which have a maximum annual payment limit of 10% of the account balance at the start of each financial year.

For the purposes of determining the minimum payment amount for an account-based pension or annuity for the financial years commencing 1 July 2019, 1 July 2020, 1 July 2021 (and 1 July 2022 proposed), the minimum payment amount is half the amount worked under the formula in clause 1 of Sch 7 of the SIS Regs. The relevant percentage factor is based on the age of the beneficiary on 1 July in the financial year in which the payment is made (or on the commencement day if the pension commenced in that year).

For market linked income streams (MLIS), the minimum payment amount for the financial years commencing 1 July 2019, 1 July 2020, 1 July 2021 (and 1 July 2022 proposed) must be not less than 45% (and not greater than 110%) of the amount determined under the standard formula in clause 1 of Sch 6 of the SIS Regs.

Note that the 50% reduction in the minimum annual pension payments are not compulsory. That is, a pensioner can continue to draw a pension at the full minimum drawdown rate or above for 2019–2020, 2020–2021, 2021–2022 (and 2022–2023 proposed), subject to the 10% limit for transition to retirement pensions. However, it will generally be inappropriate to take more than the minimum annual drawdowns in the form of a pension payment given the pension transfer balance cap. Rather, it generally makes more sense to access any additional pension amount above the minimum drawdown in the form of a partial commutation of the pension instead of taking more than the minimum annual drawdowns. This is because a commutation will generate a debit for their pension transfer balance account, while an additional pension

CURRENCY:

This issue of Client Alert takes into account developments up to and including 18 February 2022.

Keeping you informed about the Federal Budget

We expect to see confirmation from Treasury soon about when the Australian Government will hand down its Federal Budget for 2022–2023. This being an election year, early Budget delivery – perhaps as soon as Tuesday 29 March – is likely.

The Client Alert team will, as usual, work to bring you a special Budget Extra edition that outlines the key announcements to assist you in dealing with your clients’ queries. You can expect to receive it by the morning after the Budget is handed down.

Work-related COVID-19 tests may be deductible

After the recent furore over the non-existent supply of rapid antigen tests (RATs) and the reduced availability of polymerase chain reaction (PCR) tests at many COVID-19 testing sites, the Federal Government is hoping for some good press with the announcement that it will legislate to make both PCR tests and RATs tax-deductible for individuals who buy them for a work-related purpose.

According to the government’s proposal, deductibility of tests will take effect from the beginning of the 2021–2022 tax year (that is, starting 1 July 2021) and will be ongoing. Individuals will also be able to deduct the cost of a test regardless of whether they are required to attend the workplace or have the option to work remotely.

How people will benefit from this proposal depends on their individual tax rate. As a simple example, assuming that there are 249 working days in a year and that each RAT costs $20, if an employee was required to take a RAT every day that they worked, the total cost over the year would be $4,980. If that employee made the minimum wage rate of $20.33 per hour and worked 7.5 hours each day, then their yearly before tax income would be $37,966.

Based on that before-tax income, the individual would usually have to pay around $3,755 in tax. If the deduction for the COVID-19 tests was included, it would reduce the tax paid to $2,809 – a tax saving of $946 to the individual for the year. However, given that the initial test outlay for the entire year could be close to $5,000, the deduction certainly wouldn’t have the same monetary effect as to providing free tests to essential and hospitality workers.

For businesses that are able to obtain enough RATs for their workforce, the government has also proposed to make COVID-19 tests provided by employers to employees exempt from FBT, if they are used for work-related purposes. This essentially means that the tests would be excluded from the definition of a fringe benefit, and employers would not have to pay FBT on the costs of tests given to their employees in a work-related context.

With the Federal election fast creeping up, there doesn’t seem much time for this proposal to be introduced in Parliament and passed into law, especially given the lack of timeframes provided and the myriad of previous election promises also yet to be legislated. A possible change in government may even mean that this proposal remains just that, or we later see different arrangements altogether. There is uncertainty as to whether a Labor government would champion this specific tax-deductibility measure, in particular due to their election pledge of providing free RATs to all Australians through Medicare.

With all this in the background, the ATO has not provided any detailed advice or guidance on the practical aspects of this proposal. In the interim, it recommends that individuals and/or businesses incurring expenses for COVID-19 tests should keep a record of the expenses (receipts or other documentary evidence of purchase), to make the process straightforward should they become deductible in the future.

Natural love and affection: commercial debt forgiveness

The ATO has recently finalised its stance on the issue of commercial debt forgiveness – in particular, the “natural love and affection” exclusion.

A commercial debt is any debt where interest payable is deductible, or would be deductible if interest were payable, but for certain statutory restrictions. Under this definition, investments that are securities and equity for debt swaps could be included.

Under the commercial debt forgiveness provisions, if a taxpayer’s obligation to pay the debt is released, waived, or otherwise extinguished (ie by agreement, parking of debt, repurchase, redemption etc), the amount forgiven will be deducted from the taxpayer’s current and future tax deductions. Specifically, the amount forgiven will reduce prior-year revenue losses, prior-year net capital losses, undeducted balances of other expenditure being carried forward for deduction, and the CGT cost base of other assets held, in that order.

Given that commercial debts forgiven may mean a business will have to pay more tax, it can be advantageous if debts the business has forgiven are not captured under the commercial debt forgiveness provisions. The exclusions available include forgiveness of a debt that is effected under an Act relating to bankruptcy or by will, and a natural person’s forgiveness of a debt for reasons of natural love and affection for the debtor.

Before 6 February 2019, the natural love and affection exclusion to commercial debt forgiveness didn’t require the creditor who forgave a debt to be a “natural person”. This meant that a company, through its directors, could forgive the debts of an individual, giving the reason of natural love and affection for the individual, and this would not have been considered a commercial debt forgiveness, meaning a lower tax bill for the company.

Then, the ATO released a draft determination on 6 February 2019 which explicitly stated that the exclusion for debts forgiven for reasons of natural love and affection requires the creditor to be a natural person. This view has been confirmed in the finalised determination, which the ATO recently released.

Delving a little deeper into the final determination: while the ATO states that a debt-forgiving creditor must be a natural person and the object of their love and affection must be one or more other natural persons, where the conditions for the exclusion are otherwise satisfied, there is no requirement that the debtor must also be a natural person. For example, this means that the natural love and affection exclusion can apply in circumstances where the debtor is a company, such as where a parent (a natural person) forgives a debt they are owed by a company that is 100% owned by their child or children.

The natural love and affection exclusion to commercial debt forgiveness may also apply in instances where a natural person forgives a debt owed to a trust or partnership, in their capacity as a trustee of the trust or as a partner in the partnership, respectively. The ATO’s determination points out that cases where this could happen would be limited, given limitations that arise under trust and partnership law principles, statute and terms of any trust deed or partnership agreement.

According to the ATO, whether a creditor’s decision to forgive a debt is motivated by natural love and affection for a person needs to be determined on a case-by-case basis. In addition, while the ATO will not devote compliance resources in relation to debts forgiven before 6 February 2019, if required to state a view in a private ruling or litigation the Commissioner of Taxation will do so consistently with the views set out in the final determination.

Source: www.ato.gov.au/law/view/document?docid=TXD/TD20221/NAT/ATO/00001

Last chance to claim the loss carry-back

Businesses that need a little more financial help will have one last opportunity to claim the loss carry-back in their 2021–2022 income tax returns. Businesses that have an early balancer substituted account period (SAP) for the 2021-22 income year are eligible to claim the loss carry-back offset before 1 July 2022.

To recap, the loss carry-back is a refundable offset that effectively represents the tax that the business would save if it had been able to deduct the loss in an earlier year using the loss year tax rate. It may result in a cash refund, a reduced tax liability, or reduction of a debt owing to the ATO. Eligible businesses include companies, corporate limited partnerships and public trading trusts.

A company, corporate limited partnership or public trading trust may be eligible if it made a tax loss in 2021, carried on a business with an aggregated turnover of less than $5 billion, had an income tax liability in 2019 or 2020, and has met all of its lodgment obligations for the five prior income years.

Loss carry-back can either be claimed by businesses through their standard business reporting enabled software, where it has the additional loss carry-back labels required, or by using the paper copy of the company tax return 2021 and attaching a schedule of additional information to report the extra aggregated turnover and loss carry-back labels required (because these are not included in the company tax return 2021 itself).

For example, if a business is carrying back a tax loss from the 2021–2022 income year, the additional information needed includes the income year the business is choosing to carry the loss back to, the tax losses incurred, net exempt income, the income tax liability for the prior year, and the aggregated turnover range of the business.

Since there are so many additional labels which may need to be completed, the ATO has developed a loss carry-back tax offset tool which will assist businesses that are claiming the loss carry-back before 1 July 2022 to determine which labels are relevant in their unique situations. Once all of the relevant information is provided, the tool will first determine whether the business is eligible to claim the loss carry-back tax offset, then calculate the maximum amount of tax offset available. It will also provide a printable report of the labels which will need to be completed.

However, to use the tool, businesses will need to have the following information handy:

• income tax lodgment history;
• for the 2019–2020 and later income years, details of the loss that was made, including the amount of tax losses, the tax rate and the aggregated turnover for that year and the prior year;
• for the 2018–2019 and later income years, details of the tax liability, including the amount, and any net exempt income; and
• opening and closing balances of the franking account for the income year that is being lodged (ie 2021–2022).

If your clients’ businesses have been battered by the latest COVID-19 wave, they may be able to take advantage of this refundable offset one last time. Remember, the offset effectively represents the tax that the business would save if it had been able to deduct the loss in an earlier year using the loss year tax rate. Because the offset is refundable, it may result in a cash refund, a reduced tax liability, or reduction of a debt owing to the ATO, all of which should help with cash flow.

Source: www.ato.gov.au/business/loss-carry-back-tax-offset/

www.ato.gov.au/Calculators-and-tools/Loss-carry-back-tax-offset-tool/

Tax debts may affect business credit scores

The ongoing COVID-19 pandemic has caused uncertainty in many parts of the economic and has led to what many experts term a “two-speed economy”: while some businesses are recovering well, others continue to suffer from the effects. If your clients’ businesses have had issues paying debts, or have prioritised trade debts ahead of tax debts, remember that these actions may lead to penalties and have a lasting impact on the business.

The best option is to engage with the ATO to manage business debts. Failure to get in touch with the ATO to come to an arrangement will not only affect the potential penalties imposed, but may also affect a business’s credit score.

Laws were passed in 2019 which allow the ATO to disclose information about overdue business tax debts to credit reporting agencies including Equifax, Experian and Illion. The laws were originally promoted as a way to support businesses in making more informed decisions about dealings with various parties by making overdue tax debts more visible. The flow-on effects from that include reducing unfair financial advantages obtained by businesses that do not pay their tax on time, and encouraging businesses to engage with the ATO to manage their tax debts to avoid having those debts disclosed.

To protect taxpayers, the laws passed contained some safeguards. Not all tax debts can be disclosed by the ATO. The following criteria must be met for a business’s debt to qualify for disclosure:

• the business has an ABN and is not an excluded entity (excluded entities include deductible gift recipients, complying super funds or self managed super funds, registered charities and government entities);
• the business has one or more tax debts, of which at least $100,000 is overdue by more than 90 days;
• the business operators have not engaged with the ATO to manage the debt; and
• there is no active complaint with the Inspector-General of Taxation and Tax Ombudsman regarding the ATO’s intent to report tax debt information.

Even if a business debt satisfies these criteria, where exceptional circumstances apply to the situation the ATO may still have the discretion to not report the debt information to credit reporting agencies. “Exceptional circumstances” may include, but are not limited to, family tragedy, serious illness and the impact of natural disasters. The ATO will assess claims of exceptional circumstances on a case-by-case basis.

It should be noted that the ATO does not consider cash flow issues nor financial hardship to be exceptional circumstances, although it still recommends that taxpayers who are experiencing these issues initiate ATO contact as soon as possible to discuss debt management options. For example, where a business has been affected by COVID-19, the ATO has committed to additional administrative support in the areas of lodgment and payment.

Before any debt is disclosed to credit reporting agencies, the ATO is required to send the business a written notice confirming its intent to report the debt information, and setting out the criteria that the business has met and the debt information that will be disclosed. The letter will also outline the steps which the business can take to avoid having the tax debt reported – and these need to be taken within 28 days of receiving the notice. Business owners who believe that the ATO has made a mistake or who disagree with a disclosure decision are advised to contact the ATO immediately upon receiving a notice.

Source: www.ato.gov.au/General/Paying-the-ATO/If-you-don-t-pay/Disclosure-of-business-tax-debts/

https://moneysmart.gov.au/managing-debt/credit-scores-and-credit-reports

Contributions into SMSFs: minimum standards

There are many compliance obligations for trustees of self managed superannuation funds (SMSFs). One of the simplest but most important is ensuring that contributions from members can be accepted into the fund. This involves reporting the tax file numbers (TFNs) of members to the ATO, ensuring non-mandated contributions are not accepted for members over a certain age, and observing certain restrictions on in specie (asset) contributions. If an SMSF inadvertently accepts a non-allowable contribution in error, it must generally be returned within 30 days of the fund becoming aware, otherwise breaches of the contribution rules may occur.

Broadly, whether a contribution to an SMSF can be accepted depends on the type of contribution, the age of the member making the contribution, certain caps, and whether the fund has the TFN of the member.

When a member joins an SMSF, they need to provide their TFN, which then needs to be passed on to the ATO through the registration process. It should be noted that members are not legally required to provide their TFNs. However, if a TFN is not provided, the fund cannot accept certain member contributions, including personal contributions, eligible spouse contributions and super co-contributions. Employer contributions, including salary sacrifice contributions and other assessable contributions, may also be liable for additional income tax of 32% on top of the 15% tax already paid.

As a trustee, you must ensure that any TFNs reported to the ATO for members are correct. If you do not know a member’s TFN, you cannot report an exemption code such as 444 444 444. According to the ATO, exemption codes like this are intended for use by banks/investment bodies for an exemption from withholding tax on interest and other investment income, and are not for use when an SMSF member has not provided a valid TFN to the trustee.

In circumstances where an SMSF mistakenly accepts a contribution it should not have, the fund must return it within 30 days of becoming aware of the error. The 30-day limit is a grace period allowing the fund to remove the contributions from the super system without breaching the payment or contribution rules. Failure of the SMSF to comply with the time limit does not affect the fund’s legal obligation to return contributions.

Even if a member has provided their TFN, the type of a contribution combined with the age of the member can affect what is acceptable. For example, mandated employer contributions such as super guarantee contributions from a member’s employer can generally be accepted at any time, regardless of the member’s age or the number of hours they work. Non-mandated contributions largely cannot be accepted if a member is aged 75 years or older.

Non-mandated contributions include the following:

• contributions made by employers over and above super guarantee or award obligations (that is, salary sacrifice contributions); and
• member contributions, including personal contributions, downsizer contributions, super co-contributions, eligible spouse contributions and contributions made by a third party such as an insurer.

Lastly, there are restrictions on when an SMSF can accept an asset as a contribution from a member. These are referred to as “in specie contributions”, which just means contributions to the fund in the form of a non-monetary asset. Generally, an SMSF must not intentionally acquire assets (including in specie contributions) from related parties to the fund; however, there are exceptions for listed shares and other securities, as well as business real property.

Source: www.ato.gov.au/Super/Self-managed-super-funds/Contributions-and-rollovers/Contributions-you-can-accept/

SMSFs investing in crypto-assets: be informed and keep records

According to the Australian Securities and Investments Commission (ASIC), there has recently been a surge of promoters encouraging individuals to set up self managed superannuation funds (SMSFs) in order to invest in crypto-assets. ASIC warns people to be aware that while crypto-asset investments are allowed for SMSFs, they are high risk and speculative, as well as being an attractive area for scammers targeting uninformed investors.

Seek reliable information

Current record low deposit rates and volatility in stock markets around the world have motivated many retirees to seek alternative asset classes to either protect their investments or get higher returns. In conjunction, there has been a noticeable increase in spruikers encouraging individuals to invest in crypto-assets through SMSFs, with many promotions recommending switching from retail or industry super funds in order to do so.

For example, late last year ASIC moved to shut down an unlicensed financial services business based on the Gold Coast that promised annual investment returns of over 20% by investing in crypto-assets through SMSFs. The money obtained was not invested, but instead allegedly used by the directors of the business for their own personal benefit, including acquiring real property and luxury vehicles in their personal names.

Professional advice should always be sought before deciding on whether an SMSF is appropriate for your circumstances, as there are risks involved in being the trustee of an SMSF, and any SMSF established must meet the “sole-purpose” test. Remember, SMSF trustees bear all the responsibility for the fund and its investment decisions complying with the law, and breaches may lead to administrative or civil and criminal penalties. This is the case even if you (as the trustee) rely on the advice of other people, licensed or otherwise.

SMSFs are not generally prohibited from investing in crypto-assets – if you do decide, after receiving appropriate advice, that investing in crypto-assets through an SMSF is right for your situation, you can do so. Careful consideration must also be given to the following factors:

• the fund’s governing rules: trustees need to ensure that any investments in crypto-assets are allowed under the particular SMSF’s deed;
• investment strategy: there should be documentation of how the SMSF’s investments will meet retirement goals, taking into account diversification, liquidity and the ability of the fund to discharge its liabilities; and trustees need to consider the level of risk for the proposed crypto-asset investments, including reviewing/updating the fund’s investment strategy to ensure they are permitted;
• ownership and separation of assets: crypto-assets must be held and managed separately from any personal or business investments of trustees and members – the SMSF must maintain and be able to provide evidence of a separate crypto-asset “wallet”; and
• valuation: SMSFs must obtain fair market valuations for their crypto-assets for the purposes of calculating member balances.

Other considerations include restrictions on related-party transactions (that is, if you currently own crypto-assets and want to transfer them to the SMSF for various purposes, you will be unable to do so), and potential CGT consequences when an in specie lump sum payment of crypto-assets occurs upon a condition of release.

Keep your records in order

If you do decide to invest in crypto-assets, whether through an SMSF or as an individual investor, it’s also important to keep accurate records and ensure you report any related income to the ATO.

Each time you transact in crypto, the ATO requires you to keep a record of:

• the date and value of the cryptocurrency (or digital asset) in Australian dollars at the time of the transaction;
• what the transaction was for; and
• who the other party was (a cryptocurrency address is sufficient).

You must keep these records for at least five years after lodging the relevant return or form.

The ATO started its first crypto data-matching program in April 2019, comparing taxpayer self-reported income to cryptocurrency transaction data for the 2015–2020 financial years. This program was expanded mid-last year to cover the 2021–2023 financial years, and the ATO will no doubt continue to gather and compare data into the future under subsequent programs. Records relating to between 400,000 and 600,000 individuals will be obtained each financial year under the current program.

The ATO sources its data from designated service providers (DSPs) or entities providing a designated service under Australia’s anti-money laundering/counterterrorism legislation. It may also obtain data from other sources.

A designated service is any service that exchanges, issues, transacts or deals in digital currency. This includes centralised cryptocurrency exchanges, exchanges that convert fiat currency to cryptocurrency (or vice versa) or other designated or regulated entities.

The ATO’s legal power to gather information is extensive and includes the power to physically enter any place and inspect any document, good or other property – this extends to a physical cryptocurrency wallet. The ATO is also permitted by law to amend a taxpayer’s tax return for an unlimited period where it considers that fraud or evasion has occurred – and deliberate non-reporting of gains made from disposals of crypto-assets would meet this description. Possible penalties and interest are also a consideration.

Source: https://asic.gov.au/about-asic/news-centre/articles/warning-self-managed-super-funds-and-crypto-investments/

https://moneysmart.gov.au/investment-warnings/cryptocurrencies

www.ato.gov.au/super/self-managed-super-funds/in-detail/smsf-investing/smsf-investing-in-cryptocurrencies/

www.ato.gov.au/general/gen/tax-treatment-of-crypto-currencies-in-australia—specifically-bitcoin/

Client Alert returns in 2022

This is the final edition of Client Alert for 2021. The next edition will be published in February 2022.

We wish you all the best for the festive season and new year.

ATO Medicare exemption data-matching continues

The ATO has announced the extension of its Medicare exemption statement data-matching program. This program has been conducted for the last 12 years, and has now been extended to collect data for the 2021 through to 2023 financial years. It is estimated that information relating to approximately 100,000 individuals will be obtained each financial year.

The Medicare exemption statement (MES) is a statement that outlines the period during a financial year that an individual was not eligible for Medicare. It can be obtained from Services Australia. Individuals who are not eligible for Medicare will then be exempt from paying the Medicare levy in their tax returns.

If you live in Australia as an Australian citizen, a New Zealand citizen, an Australian permanent resident, an individual applying for permanent residency or a temporary resident covered by a ministerial order, then you are eligible to enrol in Medicare and receive healthcare benefits. However, this also means you need to pay Medicare levy at 2% of your taxable income to partly fund the federal scheme.

Individuals not eligible for Medicare benefits can apply for the MES to claim an exemption from paying the Medicare levy (and the Medicare levy surcharge if applicable) in their tax returns. The exemption needs to be applied for in each financial year that the individual is not entitled to Medicare benefits. The following people may be eligible to apply for an MES:

• Australian permanent residents who have lived outside of Australia for 12 months or more;
• temporary visa holders who have not applied for permanent residency;
• temporary visa holders who are not eligible for Medicare under a reciprocal health care agreement;
• New Zealand citizens who have spent less than six months in Australia within a 12-month period; and
• Australian citizens living overseas for five years or more.

The information that will be obtained as part of the ATO’s extended data-matching program includes MES applicants’ identification details, entitlement status and approved entitlement period details. The ATO will also match the number of days for which an individual claims they were not entitled to receive Medicare benefits with the information included in the MES.

The data collected will be used to ensure that exemptions claimed by taxpayers in their tax returns for the relevant years are correct, as well as to avoid the ATO unnecessarily seeking information from genuine claimants of the exemption.

In previous years of this data-matching program, the ATO was able to verify around 87% of the Medicare exemptions claimed in individual tax returns without needing to contact the taxpayers directly. However, the remaining 13% of taxpayers (around 11,000 individuals) who claimed Medicare exemptions were subjected to ATO review.

While the ATO has not detailed the specific compliance activity that may flow from the continuation of the program, this data-matching is expected to be used to promote voluntary compliance and develop educational strategies.

Building delays may cost you in more ways than one

Most of Australia has been experiencing a building boom, fuelled by government policy such as the HomeBuilder scheme and a general desire to make our living spaces better as we spend more time working, educating and living at home. However, with global supply chains and transport routes disrupted due to the effects of COVID-19, there have been well publicised material shortages and builder collapses in the sector. If you’re building or substantially renovating your home, any related delays you experience may also end up costing you when you decide to sell.

Individual Australian tax residents are able to access a capital gains tax (CGT) building concession, which in essence means you can treat either the land or the dwelling on the land as your main residence even while not living there during building or renovations. However, this concession only applies for a maximum of four years and is subject to certain conditions. Absent the concession, for example if your construction or renovation project has been substantially delayed by COVID-19, you may be slugged with CGT on sale of the residence.

For most individual Australian tax residents (not companies or trustees), there is an automatic exemption from CGT for the capital gain (or loss) that arises when you sell your home. This is called the “main residence exemption”. Generally, for the exemption to apply it must have been your main residence for the entire ownership period; however, exemptions may apply in instances where you’ve had to move out while building, renovating or repairing your residence.

The “building concession”, as it is known, allows an individual to treat a dwelling as their main residence from the time that the land was acquired for a maximum period of up to four years, subject to certain conditions. For example, the dwelling must become the individual’s main residence as soon as practicable after the construction, repair or renovation is completed, and must remain so for at least three months. The individual must also choose to apply the building concession.

The four-year maximum period applies from either the time you acquire the ownership interest in the land, or the time you cease to occupy a dwelling already on the land. If it takes more than four years to construct or repair the residence, you may only be entitled to a partial main residence exemption. This means that if you sell the residence at a future date, the period during which you didn’t live in the residence during construction or renovation will be subject to CGT.

Example

You purchase a piece of land for $100,000, intending to build a dwelling on it and live in it as your main residence. Due to various set-backs the dwelling isn’t completed within the four-year maximum period, but is eventually completed after five years. You move into the dwelling and live in it for another two years before you sell it for $300,000. The taxable capital gain in this circumstance that would roughly be $143,000 (ie capital gain adjusted by the ratio of non–main residence days to days in the ownership period).

As you can see, the financial consequences of getting it wrong are very real. If you are unable to complete your main residence construction or renovation project within the four-year maximum timeframe either due to the builder becoming bankrupt or due to severe illness of a family member, you may be able to apply to the ATO for discretion to extend the four-year period so you don’t get penalised financially.

Cryptocurrency scams on the rise

As investing in cryptocurrency becomes more popular in Australia, there is also a corresponding increase in the number of scams being reported. Due to the unregulated nature of cryptocurrency and the recent failure of two Australian cryptocurrency exchanges, this investment space has become a risky free-for-all, with Scamwatch estimating that around $35 million was lost to cryptocurrency scams in the first half of 2021. If you’re one of the unlucky ones to have been scammed, depending on the circumstances you may be able to claim a capital loss deduction.

Scamwatch, a part of the ACCC (Australian Competition and Consumer Commission), estimates that Australians lost over $70 million in investment scams in the first half of 2021. Of this $70 million, around half was lost in cryptocurrency scams, especially involving Bitcoin. Cryptocurrency scams were also incidentally the most commonly reported type of investment scam in 2021, with around 2,240 reports.

Cryptocurrency scams can come in a variety of forms, the most common being impersonation, where scammers pretend to be from a reputable trading platform and have legitimate-looking digital assets (eg fake trading platforms which look like the real thing, email addresses that approximate a genuine company they are impersonating, etc) to lure investors in. Investors who fall into this trap will usually see the initial money they invested skyrocket on fake trading platforms and may even be allowed to access a small return. Once people are hooked, though, the scammers will typically ask for further investments of large sums of money before cutting off contact and disappearing completely.

What to do if you think you’ve been scammed

People who think they’ve been scammed should contact their bank or financial institution as soon as possible. They can also contact IDCARE on 1800 595 160 or via www.idcare.org if they suspect they are the victim of identity theft. IDCARE is a free, government-funded service that will support individuals through the process.

People can alsomake a report to Scamwatch at www.scamwatch.gov.au/report-a-scam and to the Australian Securities and Investments Commission (ASIC) at https://asic.gov.au/about-asic/contact-us/how-to-complain/report-misconduct-to-asic/.

Are cryptocurrency losses from scams tax deductible?

Whether you can deduct a loss all boils down to whether you actually owned an asset. For example, if you actually owned cryptocurrency such as Bitcoin in a digital wallet and due to the collapse of an exchange all the cryptocurrency you owned has disappeared, then it is likely you can claim a capital loss. This is likely to also apply if the cryptocurrency you own is stolen in a scam.

According to the ATO, to claim a capital loss on cryptocurrency, you may need provide the following kinds of evidence:

• when the private key to the cryptocurrency was acquired and lost;
• the wallet address that the private key relates to;
• the costs you incurred to acquire the lost or stolen cryptocurrency;
• the amount of cryptocurrency in the wallet at the time of the loss of private key or access;
• evidence that the wallet was controlled by you (ie transactions linked to your identity) and that you are in possession of the hardware that stored the wallet; and
• transactions to the wallet from a digital currency exchange for which you hold or held a verified account or is linked to your identity.

If you have this supporting information, you will be able to claim a capital loss on your tax return in the year that the loss or theft of Bitcoin occurred. This can be offset against current year capital gains, or carried forward to offset future capital gains.

Unfortunately, it is unlikely that a deduction can be claimed (capital or otherwise) for individuals who have been scammed into handing over money for “cryptocurrency investment” in schemes where no actual cryptocurrency ownership occurred. This is because they have not technically lost an asset, as they did not own the cryptocurrency in the first place, and the money invested is not considered a capital gains tax (CGT) asset under Australian tax law.

Take care with small business CGT concessions

Recently, the ATO has noticed that some larger and wealthier businesses have mistakenly claimed small business capital gains tax (CGT) concessions when they weren’t entitled. By incorrectly applying the concessions, these businesses were able to either reduce or completely eliminate their capital gains. The ATO has urged all taxpayers that have applied the small business CGT concessions to check their eligibility. Primarily, this means that the business should meet the definition of a CGT small business entity or pass the maximum net asset value test.

Australia’s tax law provides four concessions to enable eligible small businesses to eliminate or at least reduce the capital gain on a CGT asset, provided certain conditions are met.

To be eligible to apply these CGT concessions, the business must have a maximum net asset value (ie the net value of assets owned by the business and related entities) of less than $6 million. Failing that, the business must qualify as a “CGT small business entity”. That is, it must be carrying on a business, and have an aggregate turnover of less than $2 million.

In addition, the CGT asset that gives rise to the gain must be an active asset, which just means it is an asset used in carrying on a business by either you or a related entity. It should be noted that shares in a company or trust interests in a trust can qualify as active assets although additional conditions may apply.

Once the basic conditions are satisfied, your small business can choose to apply one or all of the four CGT concessions provided the additional conditions to each concession is also met. Meeting all the conditions means that the concessions can be applied one after another, in some cases eliminating the entire capital gain. The concessions are as follows:

• 15-year exemption: The business may be entitled to a total exemption on a capital gain if the asset has been continuously owned for at least 15 years up to the time of the CGT event. Or, in cases where the CGT asset is a share or trust interest, the company or trust must have a “significant individual” for at least 15 years. For individuals (ie sole trader businesses), there is an additional condition that they must be at least 55 years of age and that the CGT event occurs due to either retirement or incapacitation.
• 50% active asset reduction: The business may be entitled to an automatic 50% reduction of a capital gain made on the disposal of an active asset if the basic conditions are satisfied, and the asset does not have to held for more than 12 months.
• Retirement exemption: A business that is an individual, a company or a trust may be able to choose to disregard all or part of a capital gain made from a CGT event, up to a lifetime limit of $500,000. Note, there is no age limit on using this concession, nor is there any requirement to retire, even though it is called the “retirement” exemption. However, individuals aged under 55 who apply this exemption must roll over the exempt amount to a complying superannuation fund.
• Rollover concession: A business can choose to roll over all or part of the capital gain and then acquire a replacement asset if the basic conditions are met. In the event that a replacement asset is not acquired within the required timeframe, the rolled-over capital gain will be reinstated.

The 15-year exemption takes precedence over the other concessions listed and is applied without first having to use prior year capital losses. If the 15-year exemption cannot be applied, then depending on the circumstances of the capital gain, the other concessions can be used in any order to reduce the amount of tax payable.

ATO concerns on luxury car tax

The ATO has issued an alert warning taxpayers that it is investigating certain arrangements where entities on-sell luxury cars without remitting the requisite luxury car tax (LCT) amount. This applies to those selling luxury cars in the ordinary course of business in any structure (company or sole trader), as well as those that sell a luxury car to an employee, an associate, or an employee of an associate as a one-off transaction.

Businesses and individuals who sell cars valued over a certain threshold (the luxury tax threshold) in the course of their business are subject to luxury car tax (LCT). This is a requirement if your business is registered or required to be registered for GST. LCT doesn’t just apply to instances where a dealer is selling a car to an individual or a business – it also applies in instances where a business sells or trades in a car that is a capital asset.

For the 2021–2022 financial year, the luxury car threshold is $79,659 for fuel-efficient vehicles and $69,152 for all other vehicles. This means that if your business buys a car with a GST-inclusive value above these thresholds, you are liable to pay LCT (except in certain circumstances).

If you’re the seller of a luxury car, whether or not it is within your usual course of business, you’re required to charge LCT to the recipient, reporting the associated LCT amount in your BAS and remitting the amount to the ATO by the due date for BAS payment. You cannot avoid LCT by selling a luxury car to an employee, an associate, or an employee of your associate for less than the market value, or by giving it away for no consideration. The LCT value of the car in that instance will always be the GST-inclusive market value.

The ATO is currently investigating arrangements where a chain of entities that progressively on-sell luxury cars have improperly obtained LCT refunds and evaded remitting LCT to the ATO. Usually, in this arrangement, one of the entities will claim a refund of LCT while creating a consequential liability to another entity in the supply chain. Following on from that, one or more of the participating entities down the chain, referred to as a “missing trader”, will not correctly report and pay their purported LCT liabilities to the ATO. These entities will then be liquidated to thwart ATO compliance or recovery action.

While the primary concern is the evasion of LCT, these arrangements also concern the ATO because they have the potential to result in luxury cars being sold without income tax and GST obligations being met. For example, luxury cars could be sold to end-users at more competitive prices, with generally higher profit margins, due to the intentional avoidance of tax obligations and false refund claims. This would in turn economically affect legitimate businesses that are meeting all their tax obligations.

Being aware of these potential illegal practices, the ATO is engaging with taxpayers to ensure that all parties have correctly met their LCT, GST and income tax obligations. It warns that it has sophisticated systems in place to identify high-risk LCT refunds, which will then be withheld pending adequate reviews. Further, in high-risk cases, the ATO will scrutinise contractual obligations that arise under each sale in the supply chain to ensure compliance. Transactions will not be viewed in isolation, and all sales of cars, including the ultimate sale to end-users, will be examined to ascertain the purpose of the entities involved in the arrangements.

Up and coming changes to super

Recently, a number of significant superannuation changes were proposed in Parliament as a part of the government’s plan to enhance super outcomes for Australians. If passed, the changes will allow individuals aged between 67 and 75 to make non-concessional contributions and salary sacrifice super contributions without meeting the work test. Other changes introduced in conjunction include lowering the age for downsizer contributions, increasing in the maximum releasable amount under the First Home Super Saver Scheme, and removing the minimum threshold for super guarantee.

Changes to work test and bring-forward rule

Under the current law, individuals aged between 67 and 75 either need to pass the “work test” or satisfy the work test exemption criteria if they want to make non-concessional and salary sacrifice contributions to their super. To pass the work test, an individual must work at least 40 hours during a consecutive 30-day period each income year. To satisfy the work test exemption criteria, an individual must have satisfied the work test in the income year preceding the year in which the contribution was made, have a total super balance of less than $300,000 at the end of the previous income year, and have not relied on the work test exemption in the previous financial year.

The recently proposed amendments would allow individuals aged between 67 and 75 to make non-concessional contributions and salary sacrifice super contributions without meeting the work test, subject to contribution caps. Following on from that, individuals under 75 years of age would also be able to access bring-forward non-concessional contributions in a particular financial year (provided eligibility conditions are met). The age limit to bring forward non-concessional contributions is currently 67.

Downsizer contributions age to be lowered

The current downsizer contributions measures allow individuals aged 65 or over to make a contribution into their super of up to $300,000 from the proceeds of selling their home. With the introduction of amending legislation, the government is seeking to reduce the age limit of the downsizer contributions to apply to those aged 60 or over. If passed, this change is expected to apply to downsizer contributions made on or after 1 July 2022, subject to other eligibility conditions being met.

Increase in maximum releasable amount for first home buyers

The First Home Super Saver Scheme was designed to help first home buyers save for a deposit by allowing them to make voluntary concessional and non-concessional contributions into super, and later withdraw those eligible contributions and associated earnings for purchasing a home. Currently, the maximum amount that can be released from super is $30,000. Under the proposed changes, the maximum amount would increase to $50,000. Note, however, that while the overall maximum amount would increase, the amount of voluntary contributions eligible to be released in any one financial year would not change from $15,000.

Removing minimum threshold for super guarantee

Currently, an employer does not have to pay super guarantee for an employee who earns less than $450 in a calendar month with that employer. The $450 threshold was originally introduced as a way to minimise the administrative burden on employers. However, with the technological advancement of single touch payroll (STP), the government no longer sees a need for the threshold, which is increasingly affecting young, lower-income, part-time and female workers, and has proposed removing it so that employers must pay super guarantee to all employees.

SMSF trustees: reminder to apply for director IDs

Directors of corporate trustees of self managed superannuation funds (SMSFs) should be aware that the director identification regime is now in force. Depending on when you became a director, the deadline for application is either November 2022 or within 28 days of the appointment. The application process itself is easy and can be done online through the new Australian Business Registry Services (ABRS). Once you receive it, your 15-digit identification number will be permanently linked to you even if you change companies, stop being a director, change your name or move interstate or overseas.

The director ID regime was implemented as a way to prevent the use of false or fraudulent director identities, make it easier for external administrators and regulators to trace directors’ relationships with companies over time, and identify and eliminate director involvement in unlawful activity, such as illegal phoenix activity.

Generally, a director ID starts with 036 and ends with an 11-digit number and one “check” digit for error detection. Each director will need to apply for their own ID, so if there are two or more directors for the corporate trustee of your SMSF, each director will need to apply separately. The process is entirely free, and the number that is assigned will be permanently linked to the individual.

Depending on when you became a director, the deadline for obtaining the director identification number will differ. Individuals that became directors of a corporate trustee before 31 October 2021 have until November 2022 to apply. Any individuals that are appointed to be a director of a corporate trustee between 1 November 2021 and 4 April 2022 will need to apply within 28 days of their appointment. After 4 April 2022, individuals seeking to be appointed to be directors of a corporate trustee will need to apply for a director ID before being appointed.

To apply for your director ID, you will need to first set up myGovID, which is different to myGov. The myGovID is an app that you need to download onto your smart device and confirm your identity in using standard documents (drivers licence, passport, etc). When your identity is authenticated, you’ll be able to log on to a range of government services, including the online director ID application with the ABRS.

To complete the director ID application, you will need to provide additional information such as your tax file number (TFN), residential address as held by the ATO, and/or details from two specified documents to verify your identity, such as: bank account details; ATO notice of assessment; super account details; a dividend statement; Centrelink payment summary; or PAYG payment summary.

Once you receive your director ID, you will need to pass it onto the record-holder of the corporate trustee, which may be the company secretary, another director, a contact person or an authorised agent of the company. If the corporate trustee changes or you become the director of another company, you will need to pass on this information to the new corporate trustee or the other company.

Going forward, you will also be able to log on to ABRS and update your details if required; however, if your personal details change, such as your name, role or address, you must still notify the corporate trustee within seven days. This is to enable relevant company officeholder(s) enough time to notify the Australian Securities and Investments Commission (ASIC) of the change, which typically needs to occur within 28 days to avoid late fees. Currently, director IDs are not searchable by the public; however, the Registrar (the ATO Commissioner) will be consulting the community about what details can and should be disclosed and searchable in the future.